Selective Benefits and Balance

Category: Business

Published: 03/17/2010 03:33 p.m.

We see selective benefits all over the place. Senior discounts, social security, handicapped parking. Pretty much everything the government does.

Most of these services are great because they help people who really need it. Please do not mistake my arguments below as saying we should get rid of these things. I do not want to do that. Rather, I want to better understand the real costs of selective benefits.

Handicapped Parking

Let's take handicapped parking. I think it's something we can all agree is good for society. My junior year at Texas A&M I became friends with a guy who tore his MCL. He had to crutch around campus for 8 weeks. Fortunately, he was issued a handicapped parking permit. Otherwise, he would have to hike the half-mile from the back of Lot 50 (parking for engineers). That sounds unnecessary, and he surely benefited from the closer parking.

In that case, the apparent cost to society is small. The obvious cost is one space close to the building for every required handicapped space. However, there are many more costs. The process for getting a permit, the time associated with filing the paperwork, and the employees who issue the permits and review the paperwork are all part of the cost. The paint and the sign to mark the spots are extra costs. Last is the incremental cost of policing the spaces and writing tickets or towing violators. While the costs may be great (or greater than they first appear), the need is obvious. This selective benefit is very clear on the fact that it is a selective benefit (only for handicapped people). As a society, we weigh this benefit with the costs and agree that it is worth it. Let's take the same observation with something around the office.

The Coffee Machine

First, I want to be very clear that I am talking about all offices, including my past, present, and future ones. Next, let me say that I do not drink coffee. Everywhere I have worked has had some sort of office coffee machine. Generally it's the two pot system with heaters and filters and grounds you have to operate yourself. At one place, it was the fancy single-serving machine. Either way, the coffee machine is a selective benefit.

Now you may have the tendency to think that it benefits everyone, because everyone can have some. But this isn't how it works. To someone who doesn't drink coffee, it may be easier to see the real costs, but these are costs for the group and not just the non-coffee drinkers.

• The cost of the machine
• The cost of the grounds
• The time/energy spent maintaining it
• The time spend getting new grounds
• The counter space that is not available for anything else
• The cost of additives (cream, sugar, stirrers, etc.)

The cost of coffee is high. As a non-coffee drinker, I have been subject to most of these costs. I have cleaned, filled, and shopped for the coffee machine at multiple offices. The coffee drinkers also share in these efforts, but they get the benefits of the coffee. So do I think they should be paid less, or that we should get rid of coffee? Absolutely not. The coffee machine, while costly, also has enormous benefits.

April at my office describes the main benefit as part of "setting the stage" for clients. I've had clients in almost all of my offices. From my experience, clients like coffee. Having coffee ready and warm is a valuable asset in making our clients comfortable in our office. Clients who are comfortable are much easier to work with, and together we are able to get more accomplished. Clients are the key to many (all?) businesses, and coffee is valuable to clients. So, overall, coffee is well worth the costs associated.

Taking coffee too far

Part of the costs of coffee is creamer. Most offices have a couple of kinds on hand (powder, non-fat, skim, etc.). But, most do not have 20 kinds. This is where the costs start to outweigh the benefits.

Each bottle of creamer has a few things in common with the rest. They all take up space in the fridge, they all have due dates, and they all cost about the same. These commonalities are the costs. The differences (brand/flavor) are generally the benefits. Every bottle of vanilla, chocolate, mocha, or whatever can be available to all in the office, which may make them seem like group benefits. In reality, most people only like one or two flavors, if any at all. This brings out the selectiveness of the benefits of creamer.

With each other bottle, we lose shelf space and add to financial cost. Meanwhile, the incremental benefits are usually small and only for a selective few. Let's look at the extremes. With only one type of creamer, we may satisfy 70% of the office coffee drinkers. We will likely need multiple bottles to satisfy a quantity need. Let's say that cost is 5. At the opposite end, we can have 15 different flavors. Our satisfaction level increases to 95%, but our costs grow to 15 bottles and our fridge space also increases to accommodate the new flavors.

Looking purely at the math, we have a 200% increase in financial cost and fridge space usage, while we only gain a 35% increase in satisfaction (1 - (.95/.7)). There are other benefits to our clients and others by providing choice, but I don't believe they can grow satisfaction anywhere near the increases in cost. From another point of view, we can also factor in expiration dates. A portion of the 15 different flavors will likely expire before they are used. This very visually represents part of our cost that is wasted. These items are not worth their cost, and are too selective to be provided by the company.

Balancing Benefits

Most of these thoughts were inspired by a story from my current company's CEO, Ed Schipul. He described the tale of Google's free child care for employees. Initially thought of as wonderful, it was later discovered that the program was costing the company $37,000 per child, or about triple the cost of other silicon-valley companies. Google quickly shut down the program, taking a hit in the press for their choice. In that case, the benefits were too selective, and the costs outweighed the benefits. Google did the responsible thing by analyzing the situation, recognizing their earlier error, and making a change.

Unfortunately, many businesses do not have the mindset to analyze their own selective benefits. They do things because a board member wants them, or a chief officer requests it, without regard to the rest of the team or company. Other businesses make the mistake of going in the other direction, and eliminating all types of benefits all together. This can cause a host of other problems affecting employee and client morale which can lead to high turnover and low sales.

The right mix is making choices with purpose. I've worked at companies that offer selective benefits like healthcare, 401Ks, dental, coffee, and even Friday breakfast clubs. While these things are not used by all, their overall benefits and costs have been weighed, and they have been chosen as worthy. Each company has to decide for themselves what is worth it. And as an employee, you have to decide if your company is making the right choices.